Fukunari Kimura, Keio University and Economic Research Institute for ASEAN and East Asia: The author recalls a long-term dream of finance ministers and central bank governors in East Asia and tries to show the way to get out from under the dominance of U.S. dollar usage in trade and investment. As background, there exists deep mistrust on the U.S. economy as a unique and absolute anchor of currencies for international transactions. The paper specifically highlights the enhancing usage of local currencies. Indeed, the usage of the Thai baht has recently increased, though the proportion is still low. The paper claims that some policy incentives must be provided, rather than just letting the market go, to enhance the local currency usage.
The paper discusses policies to promote local currency usage. It first points out high currency exchange transaction costs between local currencies due to a lack of direct exchange markets. It...